A month with next to no cash flow can put a strain on your resources. Asset repayments on equipment like excavators can quickly burn cash before the first invoice gets paid after a month. We asked our CFO, John Lehman, what tips he could give to earthmoving businesses in improve their cash flow now.
1. Increase sales frequency - Invoice more frequently. Don't wait for the end of the month or until a project is completed. You may need to ask permission to request a progress payment. Bonus Tip: Increase prices; pricing gets little focus but is the fastest way to increase margin.
2. Collect your receivables faster. It seems obvious, but something not always practiced, or very well. You should chase up your debtors to get payments paid on time. It's ok to ask for early payments on invoices, however, only offer an early payment discount if necessary.
3. Consider invoice discounting/financing. A third-party financial institution effectively buys the invoice for a discount. They will pay up to 80-90% of an invoice as soon as it bills. The remainder is paid to you as soon as your customer pays, less fees. It's not complicated to set-up and can be achieved without your customer being aware of it.
4. Defer any tax payments. Unless you are in the bad books with the IRD, they are open to you paying your GST or income taxes in installments. There is also the option to talk to Tax Pooling companies who could fund it for you.
5. Defer Creditors Payments. Most suppliers are quite reasonable when you need more time to pay, make sure you discuss with them the options of this before taking it on yourself to defer, ensuring you don't lose face with them.However be careful of extending creditors, as it can come back to bite unless you stay on top of it. Bonus tip: Ask for a discount; you never know when a supplier may give you a discount.
6. Sell and leaseback fixed assets There are specialist companies that provide this type funding; they buy your unfinanced equipment and lease it back to you, providing a capital injection. Also, sell off any underutilised assets to create more free cash in your business.
7. Complete a detailed Cash Forecast. On a daily basis for the next 30 days forward. Do this for 90 days as well, to give yourself better visibility into your future cash flow. Only allow urgent payments to be paid first. Once you have agreed on a payment date, stick to it, keep your credibility with banks and suppliers.
There is also additional help you can get from the government and banks at this time to help free up cash; these come in many forms like putting mortgage and loan repayments on hold and taking advantage of the small business cash flow loans. Go to the IRD website to find more on these or check with your accountant; it's always good to ask for help before it's too late.
* This information is not intended to substitute professional financial advice, always seek professional advice when making financial decisions.